Disney’s Choice

https://stratechery.com/2017/disneys-choice/

by darwhy • 9 years ago

204 82 9 years ago

zanny2• 9 years ago

I wonder if assumptions about horizontal vs vertical content hold. Disney put the first episodes of their Ducktales reboot on youtube, and a week later it has... 1.6m views. On youtube? That doesn't pay one hobbyist minimum wage for the month much less a best in class animation studio.

On one hand, yeah, its targeted at kids. They probably aren't savvy at online content discovery. They almost certainly aren't subscribed to the Disney XD Youtube channel when there are Spiderman vs Pregnant Elsa videos to watch.

On the other hand, they put it out for free, to anyone in the US with an Internet connection, and they got 1.6m hits.

I don't think horizontal works as a business strategy. It relies entirely on memetic effects to propagate your content because the advertising budget required to reach an entire demographic to get ubiquity is magnitudes larger than the cost of actually making the thing. There is too much content inundating people - especially children. It makes your success completely random. Did your "meme" scenes go viral? Did your intricately designed quotable character take off? Did you have those, and just get overshadowed by some other meme at the time?

We won't see the consequences for a while. It will be 10 years before the cablecutters who dropped Disney have children at a critical enough mass to dramatically limit the number of young faces in front of non-interactive screens. But when that comes, it will have consequences none of these companies traditionally built on tv viewership are ready for. And I don't even know if they can prepare.

I feel like the only real end-game solution is to cultivate a fanbase, and use them as your revenue stream - much like how music has become today. Artists don't make anything off trying to sell their music anymore, because not being on spotify and pandora is a death sentence to your relevance. You need the audience, even if they aren't paying you anything, to attract fans that want mech you can profit from.

It would be really weird to see Ducktales as a Patreon project that is getting paid by 100k supporters several millions a month, but it seems to me that is the endgame for original creative media in the long run.

013a2• 9 years ago

I agree. Google is the canonical example of one of these horizontally integrated companies, but they're a very unique case. They use their reach to intake massive amounts of data which increases the value of their advertising. It isn't just about having more ads on more screens; its about those screens providing data which allows you to charge more for your ads.

Netflix capitalizes on this a little bit as well, with using viewing trend data to determine what shows to fund next. But I was bearish on Netflix for a long time; to acquire content they have to pay recurring fees to the original producers, which means annual expenses increase as content increases, but ARR only increases when customers increase. Eventually... everyone has Netflix. How do they increase their content library then?

One way is contract value depreciation of the content over time, which happens. Another is selling addon packages; the "cable industry" route. But the real answer is: Original content. In other words, growing the vertical integration of their platform.

And now we see Google really quadrupling-down on efforts which sound more vertical than horizontal; cloud platform and g-suite.

I think there's something here.

zanny2• 9 years ago

Eventually... everyone has Netflix.

Or even more critically, everyone has seen everything they want to see on Netflix, and Netflix itself cannot produce enough original content fast enough to justify the sub. Especially when they are competing with what is often free and immediately accessible.

I don't have a Netflix sub right now because nothing they make is compelling enough to pay the $10. Sometimes they release a show I want to see, so I sub for a month, watch that, and unsub again. For like a year. But we are only getting more content online over time, not less, and I'm finding way less need to seek out something to waste time watching, especially if I have to pay up front for it.

pgodzin2• 9 years ago

I doubt they put up Ducktales content on Youtube expecting hundreds of millions of view and a ton of advertising money. It's more to have the IP consumed and fresh in kids' and parents' minds for when a new Ducktales movie or toy comes out to support the reboot. The reboot is more of an ad for future monetizable products than anything else.

pryelluw• 9 years ago

Yes, they are setting up a sales funnel for all future duck tales content. People should understand that Disney makes a lot of long-term moves like this one.

ghaff2• 9 years ago

Which is one of the reasons to make free or essentially free content available these days. The flipside is that, when there are free or essentially free distribution channels, there's a lot to be said for making some content freely available rather than making an inconsequential amount of money off it, if it's tied to other things you can monetize more effectively.

uberdru• 9 years ago

You are exactly right. If you don't have a kid between the ages of about 3 and 6, I imagine it's possible to underestimate the kinds of quirky (and incredibly effective) advertising that's being cooked up for the little ones.

aaron695• 9 years ago

That doesn't pay one hobbyist minimum wage for the month much less a best in class animation studio.

Basically they put up an Ad for a eagerly awaited product with a really large fan base (a generation of parents wanting to give their kids the nostalgia they have)

Really they should be paying Youtube?

The concept of the first in a series is free is a common business concept for many products (like collectors cards, heroin, first month free memberships). It's an old concept except digital.

kristianc• 9 years ago

I feel like the only real end-game solution is to cultivate a fanbase, and use them as your revenue stream - much like how music has become today. Artists don't make anything off trying to sell their music anymore, because not being on spotify and pandora is a death sentence to your relevance. You need the audience, even if they aren't paying you anything, to attract fans that want mech you can profit from.

This is more or less what Disney is doing by putting Ducktales on YouTube for free.

jdmichal• 9 years ago

Completely agree. I feel like I'm in some alternate universe... Well, maybe being in Florida is an alternate universe in this case. Disney is the king of merch upsells. This is the same company that gets tens of thousands of visitors a day to actual physical theme parks. Most companies would be happy to get that to their website, which is just one URL away. Disney Jr. has "commercials" showing kids visiting different parks for the first time, and of course having a blast. Toy stores are full of Disney toys, books, movies, games, and even clothes.

What is even happening anymore?

TazeTSchnitzel• 9 years ago

There's a risk that Disney will screw this up, but personally it looks like something hard to get wrong. Disney has a huge library of unique, high-quality content people really want to watch. If they can put all of it — not artificially limiting the selection too much — on one service and set the price right, they should do well.

secstate• 9 years ago

I thought that too, but the article makes a really interesting point, backed by Iger's quote, that they may not wrap Marvel and Star Wars in. Honestly, I have no desire to subscribe to their service without that IP and I doubt I'm alone. Of course, plenty of people still will, but will it be enough to make it profitable?

heartbreak• 9 years ago

They bought their minority stake in BAMTech (the streaming spinoff of MLBAM) earlier this year. There’s no way they’re going to mess this up from a tech standpoint either.

stevenwoo• 9 years ago

HBO Go was totally redone from the ground up by the MLB team I believe and there were some hickups at the start but it has been pretty good since then.

chrisseaton2• 9 years ago

If they can put all of it — not artificially limiting the selection too much — on one service and set the price right, they should do well.

I don't understand why everyone is talking about this like it's a potential idea. This service exists today - Disney Life. It's about $7 a month.

lilgreenland• 9 years ago

looks like this isn't available in the US

dforrestwilson• 9 years ago

It's not entirely binary and I think Ben underestimates the power that content creators have in this country. Some content is simply classic, and will have value 30 years from now. Disney is amazing at making it. Disney is also amazing at lobbying Congress, along with other traditional media content providers to entrench their copyrights beyond the pale: https://www.theverge.com/2017/4/3/15161522/mpaa-riaa-copyrig...

Netflix has been forced to create it's own content because old media wants to charge Reed an arm and a leg for anything distributed online that they don't have control over. Old media always raises the asking price for anyone who comes to them requesting to redistribute content. They are scared to alienate the cable providers, the advertisers, and of losing even more control of distribution with these new consumer-centric on-demand business models. This is why despite years of hype, Google and Apple haven't gotten far with their TV bundles so far.

I do think the Netflix - Disney love/hate is over-hyped. Both can exist. Disney can keep crafting great stories and Netflix can keep targeting customer groups across the globe with affordable content that scratches their niche itch. Amazon has been more willing to pay the piper, but has also had to resort to in-house content. The great thing about good TV/movie content is it tends to retain value. Good luck to Disney creating as seamless a distribution platform as Netflix though...

I think Viacom is going to be the real loser here, to YouTube and Netflix. Most of their MTV, Comedy Central stuff has no replay value. Music videos in particular have been completely absorbed by YouTube. Meanwhile Netflix is doing great comedy specials. Years of family in-fighting has only further weakened Viacom's position and they are likely to be forced into tiered packaging deals by even their traditional cable and satellite partners.

spking• 9 years ago

I would love to see the books for https://www.warnerarchive.com/

$10/mo for 40+ year old TV shows and obscure films that only people over 70 would be aware of.

garduque• 9 years ago

I have a 2- and 3-year-old. Give me all the Disney things at $10/mo and we're good. I'd prefer they be included in Netflix, but Netflix+Disney and I'm still better off than cable, and hopefully there is some better curated content as a result.

thwarted• 9 years ago

Give me all the Disney things

This would totally be worth $10/month to have access to the entire Disney catalog; the entire "Disney Vault", all the content from the 60s, 70s, and 80s; all the Wonderful World of Disney; all the classic Disney movies (the entire catalogs of the likes of Fred MacMurray, Annette Funicello, Tommy Kirk, Keenan Wynn and other contract Disney actors from those eras; movies like The Black Hole, Apple Dumpling Gang, The North Avenue Irregulars and other stuff that, if it's available at all, is only currently findable used on VHS); all the animated Disney movies; all the Mickey Mouse and Donald Duck shorts; all the Mickey Mouse Club episodes, all the tween-centric episodic shows, etc.

This would potentially be worth more than $10/month.

If it's just going to be the popular animated feature-length movies, it's not worth $10/month. And they could still screw this up by not having the entire animated movie catalog available for random streaming, but rather only a subset available at any given time.

Disney has a truly massive archive of quality, family content, much of which hasn't been seen for decades and few people even know about or remember. It would be a shame if it continues to rot in obscurity in their vault.

ctdonath3• 9 years ago

"Song of the South" being a prime example. Pirated discs are prolific in the region the story is set in, consistently fetching >$20 a copy.

cptskippy• 9 years ago

And they could still screw this up by not having the entire animated movie catalog available for random streaming, but rather only a subset available at any given time.

That artificial scarcity that Disney practices with physical media won't work with an on-demand service and if they try it will definitely be what kills the service.

It works with physical media because once you own it you can watch it as much as you like. So when they do offer the media, people jump and pay full price for it because they know it's their only chance for a while.

With on-demand people aren't going to stick around in the hopes that a movie they want comes into rotation.

rdtsc2• 9 years ago

One thing I noticed with my kid (5 yrs old) is they enjoy repeatedly watching the same show. Even if the whole Disney catalog was available they'd probably watch the same move for days on end. At first I was encouraging trying new shows but apparently it is normal for kids to act that way. So what we ended up doing was just purchasing the movies. The trick is figure out if they'd like it. But so far we've had a good track record at guessing.

$10/month would be worth it for me but it's probably not realistic. A single movie usually costs more than that. With this plan they'd cannibalize their own media market.

Iv• 9 years ago

$10/month would be worth it for me but it's probably not realistic. A single movie usually costs more than that. With this plan they'd cannibalize their own media market.

Another way of being 'realistic' (not moral) is to see that 1TB hard drive is 100 bucks and can contain a thousands of Disney movies, which can be obtained fairly easily online.

They can't charge too much for something that people essentially buy out of good will rather than necessity.

lostmsu• 9 years ago

Hell, I do the same all the time. Honestly, there's very little number of shows or movies that bring noticeable value. So I prefer to rewatch good ones I've already seen.

flukus• 9 years ago

Even if the whole Disney catalog was available they'd probably watch the same move for days on end. At first I was encouraging trying new shows but apparently it is normal for kids to act that way.

I remember doing that but I thought it was because we only went to the video rental store once a week.

bluedino• 9 years ago

Any of my friends who have young kids, they all have a different Disney/Pixar movie on a loop.

dalore2• 9 years ago

Doesn't Disney already have a streaming TV service called Disney Life that does all this? It's £4.99 a month here so less then your $10/mo range. You get access to quite an extensive catalog of Disney stuff. It's a bit clunky the interface, not remembering where you were when you left. Fast forwarding is a pain. Sometimes crashing (and coupled with the not remembering and the fast forwarding is a pain, makes it a bigger issue).

Mindwipe2• 9 years ago

Yes. You'll note a lot of writing about this from the US posing questions that ignores that we already know what this service will be like, because they've already piloted it in the UK. And they're going ahead with it because it did reasonably well.

This article already fails by virtue of going "whu, no Marvel, how do the build a proposition here?" We already flaming know.

chrisseaton2• 9 years ago

Well that's just Disney Life isn't it? All Disney things, and it's less than $10 a month. My daughter loves it.

TheBeardKing• 9 years ago

To me Amazon has the best kids content, so add to that Netflix and HBO Kids and we're covered. I'm not shelling out more for Disney.

falcolas• 9 years ago

$10 a month can build up an impressive DVD collection in short order. And then you own them and can stop paying to access that content.

Not saying it's the better option, but a lot of folks forget that it is an option.

chi172• 9 years ago

Splitting from Netflix would've been genius if the idea were that they'd partner with a competitor to challenge Netflix, namely someone like Hulu or, better yet, Amazon.

Going off on their own without being part of a larger more diverse set of content could deal a serious blow to Disney. I for one would not ever pay Disney through a Disney-specific service just for streaming Disney content, as much as I like Disney movies.

sdrothrock2• 9 years ago

Why does it have to be just Disney content? Keep in mind that even that is not just the movies, but also all of the TV content that's run on the Disney Channel.

Disney also owns Marvel, which brings all Marvel content.

Disney also owns Star Wars now, too.

Disney also owns ABC and ESPN.

One of the major complaints with all of these streaming companies is "no sports" -- imagine if Disney leveraged their sports library and technology to bring live streams to their library? How about old classic games? Best Of series?

It seems like Disney is actually in a FANTASTIC position to provide entertainment for every single person in the family.

ricardobeat• 9 years ago

The article addresses this specifically, saying Disney does not intend to make any of that content available in this new service.

pgodzin2• 9 years ago

What's the difference at that point if Disney's content is on Amazon rather than Netflix. They are betting that their entire catalog (ABC, Marvel, Star Wars, ESPN, etc) is worth more direct to consumer than whatever small fraction they are getting of every subscriber fee.

snuxoll• 9 years ago

I don't think Disney produces enough content that could justify such a service, they have a diverse catalog but it really doesn't have the depth.

Maybe I'm weird, but I get my fix of Disney IP's by purchasing a Blu-Ray once or twice a year - I can't stand the garbage Disney puts on their cable channels (seriously, to hell with the Disney Channel and Disney Jr.), their classic movie library I won't let my daughter near, I couldn't care less about anything on ESPN and ABC. That basically leaves Pixar, Star Wars, (sometimes) Marvel and on (rare) occasion their newer films and licensed content. Why on earth would I pay $5-10/mo ($60-120/yr) when I can spend $20-40/yr on a disc or two?

chi172• 9 years ago

The article indicated otherwise:

'At the same time, Disney might not even include all of its own content in the service. Iger said of Marvel and Star Wars, “We’ve also thought about including Marvel and Star Wars as part of the Disney-branded service, but there where we want to be mindful of the Star Wars fan and the Marvel fan and to what extent those fans are either overlapped with Disney fans or they’re completely basically separate or incremental to Disney fans.”'

If the only way I could stream new Marvel movies would be to go to Disney directly, I might pay per movie, or if it were cheap enough, I'd pay $7 for a single month of service to get that new movie or watch the original Tron re-engineered to look incredible in 8K one day when I'm 80 years old and have an old 8K monitor. But, I feel safe in my decision not to pay for a streaming service of only Disney content; I'm not a Zac Efron fan, though I did think Radio Rebel was Debbie Ryan's best movie.

santaclaus• 9 years ago

How does Disney's income break down in terms of merchandise/parks/cruises vs. eyeballs paying to look at moving pictures? If most of their income is the former, why does Disney care where or how people are exposed to their brand?

Avenger42• 9 years ago

Their wiki page has some numbers for the last few years. Parks/Resorts (incl. cruises) made $3.3B in 2016; Studio Entertainment made $2.7B; Disney Media Networks (ABC/etc) made $7.8B. So if you put the TV and films together, that's roughly triple their parks & resorts.

(Edit: changing revenue to income.)

aidenn0• 9 years ago

What about merchandising?

[edit] about 1/3 of the parks:

Studio: 9,441

Consumer Products: 5,528

Parks/Resorts: 16,974

Media Networks: 23,689

jcranmer• 9 years ago

The real cash cow of Disney is actually ESPN. Trying to break down the finances to that fine-grained a level is difficult, but the category of "TV networks" as a whole is ⅓ the total revenue of Disney (more than Parks & Resorts, and more than films and merchandising combined) and ½ the profit.

Put another way, current sports is more valuable to Disney in terms of actual revenue and profit than every movie they've made in nearly 100 years of existence.

maguay• 9 years ago

One question is what happens over the long term to Netflix' Marvel shows. They're still owned by Disney, but are some of the most popular Netflix "originals."

Pulling those—or their followup seasons—over to the Disney streaming service would have to hurt Netflix.

Joeri• 9 years ago

I've watched those shows and enjoyed them but I feel like they're becoming redundant so it would probably be a good thing if netflix was forced to do truly original content. The whole superhero thing is growing stale for me anyway, and I suspect for a lot of others as well.

dmichulke• 9 years ago

I have an solid antipathy against the superhero movies and I dislike that Netflix offers so many of those that it's hard to browse their non-superhero offers.

Please Disney, be greedy here, I know you can and I know you want to :)

dagw• 9 years ago

Netflix recently bought up Mark Millar's comic book company, presumably because they've seen the writing on the wall and want to keep making super hero movies/TV shows after their current deal with Marvel ends.

bbarn• 9 years ago

The article mentions the realization that it's a different audience and separate from the Disney offering in general (ditto star wars). Sounds like there's a chance they leave that bit aside for different strategies.

MarkMc2• 9 years ago

Why don't Disney and Netflix come to an agreement where Netflix offers a Disney-only channel? Each company can then concentrate on their core competencies: Disney can focus on creating content, and Netflix can focus on displaying it to people.

Consultant32452• 9 years ago

Hulu would be a better choice for that type of arrangement. They already have an add-ons framework for things like HBO. Prime also has this set up.

Noos• 9 years ago

why should Disney make Netflix richer?

Netflix for Hollywood was just a middleman that siphoned away their profits. Disney is just removing them from the equation because they feel they can run their own streaming service and capture more value than they provide. You only use middlemen when you have to, and they decided they don't have to any longer. And this lets them charge more and give customers more value too. A $30 a month sub with access to everything makes more sense than slowly rotating old shows for a $10 sub.

MarkMc2• 9 years ago

Disney should make Netflix richer because they have no reason to believe they can do the following things better than Netflix: streaming gigabytes of data over the internet to millions of users, collecting payment and handling customer support.

It's the same reason that Disney doesn't operate its own movie theatres: it doesn't have any competitive advantage in this area.

Disney can offer "a $30 a month sub with access to everything" through Netflix. That is, Netflix would offer a 'Netflix channel' for $10 per month or a 'Disney Channel' for $30 per month.

Keep in mind that Netflix doesn't have much bargaining power - if they ask for more than say a 7% cut of that $30, Disney can just build their own streaming service for around 7%. Therefore it's in Netflix's interest to offer to host the Disney streaming channel for a percentage that is just a bit less than would cost Disney to build their own streaming service.

drawkbox• 9 years ago

The antenna is mounting a quiet comeback

People are getting antennas but a large reason is that most cable and network providers switched to digital only and turned off analog in the last year or two. Digital antennas are quite nice for live not avail on streaming or something like Vue.

I cut the cord in 2015 for a Vue/antenna/Hulu/Netflix alternative and Cox cable in Arizona turned off analog in 2016[1] in my area on the default wire so a digital antenna was needed. The cord cutter movement pared with providers turning off analog, and cord cutters missing live/local channels on services like Vue/Sling etc spiked the sales in antennas. Haven't used an antenna in ages and digital antennas are actually quite nice, full HD or no channel, tv static snow is dead.

[1] http://www.azcentral.com/story/money/business/consumers/2016...

shmerl2• 9 years ago

Distribution should be decoupled for content creation, then there is true competition and everyone wants to sell everywhere, instead of pulling content from everywhere, which only hurts end users.

skrebbel• 9 years ago

That would be nice, but it's not how the world works.

I even doubt you'd be able to regulate it well. It would mean forbidding Netflix Originals, for example. Netflix would just start a legally independent production company called Fletnix and get global exclusive licenses on all content it produces.

shmerl2• 9 years ago

So exclusive licenses should be forbidden by antitrust law. Something should make it work.

raverbashing• 9 years ago

Netflix wasn’t simply a customer for Disney’s content, the company was also a competitor for Disney’s far more important and lucrative customer — cable TV

Remember when Sony Electronics tried to play the game Sony content companies wanted it to?

Yeah, that worked out just fine. NOT

ctdonath3• 9 years ago

As a former Sony fanboy, Sony Electronics makes the systemic mistake of completely forgetting the customer the moment the hardware is sold (as contrasted with Apple, providing ongoing quality services that encourage more hardware purchases).

My last straw was buying a Blu-ray player that claimed glorious high quality video and lots of apps/software/content: with anticipation I had it play the included trailer for then-coming-soon movie "Salt", expecting the very best of my then-new 1080p system ... and was dismayed by a horribly grainy 320x240 video. Sony Electronics didn't give a ---- about content, even though the whole point of buying the products was experiencing content.

gldalmaso• 9 years ago

Aren't they basically incentivizing Netflix to enhance they own catalog? They are already on it and they certainly got my attention for getting some pretty good content out. Netflix can basically just head hunt great content creators and producers which are left out of the industry altogether.

Unless they offer their content for a fraction of Netflix subscription (which I doubt), I'm not up for supporting this disaggregation of content by each producer. Netflix already has the tech, the infrastructure, the apps, which I'm already paying for. Do I have to pay for it 2x, 3x, 4x?

islanderfun• 9 years ago

Seems like the company they bought has the tech, infrastructure and apps. [1]

I'm sure it will provide value to some and not others. Overall I believe it's smart move for Disney.

[1] https://www.forbes.com/sites/maurybrown/2014/07/07/the-bigge...

lsaferite• 9 years ago

Isn't solving the Live Streaming issue different that the VOD issue? I mean, I know there is a large amount of overlap, but live streaming benefits greatly from what is basically multicasting. With VOD you may have every single person watching the same thing, but at different points. I think I read that HBO also uses the company that Disney bought, so they must be able to handle VOD in some form because the weekly surge of GoT watchers is likely massive.

jimbokun• 9 years ago

This transcript of a Steve Jobs interview linked from the article seems still very relevant:

https://stratechery.com/2013/steve-jobs-on-television/

Seems like Netflix is slowly chiseling a way at the TV go-to-market strategy. Also seems like there is still a lot of resistance to the single-integrated-UI problem. Still lots of paradigms, apps, and devices competing to be the accepted way to find and watch video on your big living room screen.

Disney’s Choice

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